Will the EU transfer frozen Russian funds to rebuild Ukraine?

At a meeting of the European Council on December 14–15, among other topics, European leaders discussed the approval of the EU’s plan to transfer funds from the frozen assets of the Russian Central Bank to Ukraine.

European Commission President Ursula von der Leyen voiced this idea on November 30, 2022, and now, for the first time, it has a chance to be put into practice.

Interestingly, the recent issues with the allocation of financial support to Ukraine only increase the likelihood that the EU will make a positive decision on this matter. And this will be a significant step in gathering funds to rebuild Ukraine, which has been suffering from Russia’s war.

The fate of the frozen billions of the Russian Central Bank, as well as the profits accumulated from their use, is one of the most discussed and difficult topics for Brussels.

There is no consensus on this issue even among the key EU bodies: the European Parliament calls for the confiscation of assets and their use in the interests of Ukraine, the European Commission advocates their use or taxation with the transfer of the proceeds to Ukraine, and the European Central Bank is strongly opposed to any of these options.

On December 15, the European Council released the essential conclusions of its meeting. In paragraph 6, the EU’s most influential body calls for active action to use the excess profits from Russian assets to help Ukraine “in accordance with international law and EU law.”

Institutions that control frozen Russian assets (e.g., Euroclear Bank) will have the right to decide on the fate of the accumulated profits from these assets through a developed legal framework.

The second important point is the purpose of using these profits. The European Council’s statement refers to “support for Ukraine, its recovery, and reconstruction.” The clause in the EU’s “Negotiating Box” on a multi-year financial program to support Ukraine for 2021–2027 holds even greater importance here.

According to the agreement, Ukraine should fill 17 billion euros of the 50 billion euros of aid for 2024–2027 by using the proceeds of frozen Russian assets, among other sources.

It is currently uncertain whether the final decision, which the European Council could adopt at an extraordinary summit, will reflect these provisions.

In December, Ukrainian officials expressed an estimation that the funds from frozen Russian assets “at the current level of interest rates in the world can reach $15 billion annually.”.

This estimate is likely to be too high. According to the Financial Times, it could be as low as €3 billion a year. The media says that the EU seeks to raise €15bn for Ukraine from Russia’s frozen assets over four years.

These funds aim to compensate for the damage caused by Kremlin aggression and finance Ukraine’s needs, regardless of the amount.

Moreover, Western allies will provide these funds to Ukraine as part of the overall financial support rather than as additional support.

This turnaround was not unexpected in light of the slowdown in U.S. aid to Kyiv, Hungary’s blocking of the EU’s $50 billion aid plan for Ukraine, and the German budget crisis.

However, the transfer of frozen Russian funds to Ukraine and the timing of such a transfer remain unpredictable. But whatever the size of these revenues and no matter how painful it may be for Russia, this is not a step that definitely brings Europe closer to confiscating the assets of the Central Bank of the Russian Federation in favor of rebuilding Ukraine to restore the cities and villages destroyed by the Russian army.